Turning energy price risks into opportunities

Blog

Posted on: 22/11/2017

James Graham, Head of Asset Optimisation Sales, looks at some of the impacts of the changing energy system on consumer bills and how businesses can turn price risks into opportunities as the value of flexibility increases.

We’ve already seen huge growth in intermittent, renewable generation as we strive to decarbonise. Regulation and economics are resulting in the displacement of thermal plants, with a phase out of coal by 2025 meaning supply margins will be more reliant on renewable output. The electricity system is changing quickly and there’s a role for large energy-users to play in balancing the grid.

Ambitious transition comes with cost

Non-commodity charges, such as the Renewable Obligation (RO) and the Feed-in Tariff Contracts for Difference (FiT CFD) levies, are passed through to consumers to support the growth in renewable generation. As more projects come onto the system, these costs are set to rise year on year – see our latest Non-Commodity Cost Forecasts here.

The Capacity Market scheme, which ensures sufficient capacity can be called upon when the system is struggling to meet supply requirements, is also a cost passed through to consumers during the winter peak period (November to February). By 2020 this cost could add £5/MWh to the cost of peak power.

These costs are unavoidable, therefore businesses looking to manage their energy costs will have to consider how they use less energy, buy at the right time, or consider how flexibility could be used to avoid these costs or generate additional revenues.

Opportunities in wholesale market volatility

With more renewables coming onto the grid, we’ve seen tighter supply margins and extreme price volatility in the within day market.

While many businesses are not directly impacted by spot market volatility, this could result in higher peak prices and increase the cost of suppliers balancing their portfolios, which could all translate into future higher costs on energy bills.

This could however increase the value of flexibility for businesses that can respond and adjust their demand according to extreme wholesale market price signals.

Watch the short video below where I demonstrate how trading your flexibility on the wholesale market for three months in Winter 2016 could equate to roughly the same value as an annual Capacity Market contract.

So what is the best approach? It doesn't have to be a binary decision to utilise wholesale market or ancillary services, it may be possible to stack multiple revenue streams over a year so it's important to consider all the options if you want to maximise the value of flexible assets and processes.

Exciting opportunities…

We believe there’s a real opportunity to be part of a “consumer-led” system where DSR plays a pivotal role in ensuring the new energy system delivers affordable, clean, secure energy to consumers.

Undeniably there will be many challenges for UK businesses as the system gets even more complex, but with those challenges come exciting opportunities and we’d like to help your business take advantage of them.

Start your DSR journey by booking a site survey to explore the flexibility your business has and turn some of these future risks into opportunities!

James joined SmartestEnergy in 2012 as a Business Development Manager after more than a decade’s experience working in the energy sector and later became Head of Direct Sales. In his current role he is responsible for delivery of sales through SmartestEnergy’s Asset Optimisation function. His role focuses on working with customers to deliver value from flexibility across generation and demand response. His career in the energy industry has seen him hold senior roles with companies including Reactive Technologies and Bergen Energi.